Bad reception: Arrest adds to Huawei's global woes

12/06/2018

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The company has faced a tough year, with some of its services rejected in the United States, Australia, New Zealand and Britain over security concerns.Huawei overtook Apple as the world's number two smartphone maker this year

The arrest of a top Huawei executive in Canada is the latest in a series of setbacks that have disrupted the Chinese telecom behemoths global expansion amid a US-led effort to blackball it internationally.

The latest hit came on Wednesday, as Canada announced that chief financial officer Meng Wanzhou -- the daughter of founder Ren Zhengfei -- was arrested at the weekend as US authorities seek her extradition.

The Canadian justice ministry did not provide details about the charges, but US authorities are reportedly investigating whether Huawei violated sanctions against Iran by supplying parts to the country.

Analysts say the allegations, if proven, could result in a ban with far-reaching global consequences.

'Security risk'

China's largest telecoms equipment maker has received an increasingly chilly international reception this year as US allies have moved to ban its products.

Britain's largest mobile provider BT on Wednesday announced it was removing Huawei equipment from its 4G cellular network, days after the head of the MI6 foreign intelligence service singled out the company as a security risk.

A week ago, New Zealand's intelligence agency barred Huawei equipment in the rollout of the country's 5G network, citing similar concerns.

Australia and the United States also enacted similar bans earlier this year, leaving Canada the only country in the "Five Eyes" intelligence network not to take steps against the Chinese firm.

Huawei founder Ren is a former People's Liberation Army engineer and there are concerns of close links with the Chinese military and government, which the firm has constantly denied.

The company is well aware of its reputation as a "security risk", said Kitty Fok, managing director of research firm IDC China, adding that it has been taking steps to show transparency, including sharing its source codes.

As governments roll out 5G infrastructure, which many see as a backbone of the new digital economy, it is "not the biggest part of the business" for Huawei, Fok said.

"But the arrest of the CFO, that is something completely unexpected... and if there is a ban like ZTE, given the size of Huawei, (the impact) will be a lot bigger."

Earlier this year, the US imposed a seven-year ban on the sale of crucial components to Chinese smartphone maker and Huawei rival ZTE after it failed to take action against staff responsible for violating trade sanctions against Iran and North Korea.

The ban nearly killed off the company before Washington and Beijing reached a deal.

Europe business

While Huawei has developed its own Kirin processor chips unlike ZTE which is reliant on chipmakers like US firm Qualcomm, global telecommunications ecosystems remain vulnerable because of the sheer size of the company.

"The impact on telecommunications carriers of a similar and sudden denial ban of the type placed on ZTE would be much wider, given that Huawei equipment is more widely used by carriers around the world, including in Europe and Africa," said Paul Triolo, head of the geo-technology practice at the Eurasia Group research firm.

Meng's arrest suggests the US Department of Justice might be able to mount a similar case to that of ZTE, Triolo added.

But the enormity of Huawei's global operations could also make it difficult to enforce a similar ban, noted Andrew Kitson, who monitors telecoms, media and technology at Fitch Solutions.

The company is still welcome in many parts of the world, including Europe.

Portugal's telecoms operator MEO said this week it would cooperate with Huawei to speed up construction of the country's 5G network while several French mobile providers are continuing to use the firm's parts.

"If French and German telecommunications companies join these prohibitive measures, it will have a profound and lasting impact on Huawei," said Mo Jia of Canalys, a technology market research firm.